Standard Chartered Global Research team discusses Euro area monetary policy, noting that core inflation has only edged up slightly since January and that higher yields pose downside risks to both growth and inflation. The authors judge that these factors reduce the chances of an October rate hike and expect the Governing Council to wait for new macroeconomic projections at the December policy meeting.

Limited odds of October rate hike

“Moreover, core inflation has drifted only modestly higher since late February, rising from 2.2% in January to 2.5% y/y in September.”

“In addition, Lagarde has highlighted the downside risks to both growth and inflation arising from higher yields.”

“These factors limit the likelihood of an October hike, in our view.”

“We also think, on balance, that the Governing Council would prefer to wait for new macroeconomic projections to deliver a policy rate change, the next of which will accompany the December policy meeting.”